This week we’ll begin with our monthly and weekly forecasts of the currency pairs worth watching. The first part of our forecast is based upon our research of the past 16 years of Forex prices, which show that the following methodologies have all produced profitable results:

• Trading the two currencies that are trending the most strongly over the past 3 months.
• Assuming that trends are usually ready to reverse after 12 months.
• Trading against very strong counter-trend movements by currency pairs made during the previous week.
• Buying currencies with high-interest rates and selling currencies with low-interest rates.

Let us look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:

Monthly Forecast October 2020

This month, we forecasted that the USD/JPY currency pair was likely to fall in value. Its performance to date is as follows:

Weekly Forecast October 11 

Last week, we made no weekly forecast, as there were no very strong counter-trend price movements to exploit.

We have the same situation this week.

The Forex market showed a very similar level of volatility compared to the previous week, with only 30% of the important currency pairs and crosses moving by more than 1% in value last week. Volatility is likely to be at a similar level this week.

Last week was dominated by relative strength in the Canadian Dollar and relative weakness in the U.S. Dollar.

Key Support/Resistance Levels for Popular Pairs

We teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that can be watched on the more popular currency pairs this week.

Let us see how trading a reversal from one of last week’s key levels would have worked out:

AUD/USD

We had expected the level at 0.7100 might act as support, as it had acted previously as both support and resistance. Note how these “flipping” levels can work well. The H1 chart below shows how the price rejected this level towards the end of last Tuesday’s New York session, turning decisively bullish when a bullish doji candlestick broke up right away at the up arrow shown in the price chart below. This trade has been nicely profitable, achieving a maximum positive reward to risk ratio so far of more than 9 to 1 based upon the size of the entry candlestick.